The article discusses negative real yields on short-term Treasury securities since October 2010. Real yields are nominal yields adjusted for inflation, and have been negative in most months since 2010 as inflation has exceeded nominal interest rates. Investors have faced losing wealth in real terms by earning almost nothing on cash balances due to the Federal Reserve cutting interest rates to near zero since 2008 to spur economic recovery. Some investors have shifted portfolios to money market funds and cash to avoid stock market volatility, but this risks eroding purchasing power as no one can consistently time markets.

1. Volume 5, Number 4
Volume 5, Number 4
Quarterly Newsletter
Quarterly Newsletter October 2011
October 2011
Quarter in review
uarter in eview
By: Jon P. Yankee, MBA, CFP®
By: Jon P. Yankee, MBA, CFP®
It is hard to remember now that in the
It is hard to remember now that in the
first quarter, just a few months ago, the
first quarter, just a few months ago, the
ASSET CLASS PPerformAnCeQ3 2011
A sset ClAss ERFORMANCE: :
ASSET CLASS PERFORMANCE: Q3 2011
markets were flirting with a full recov-
markets were flirting with a full recov-
Gloom, Doom, and the
Gloom, Doom, and the ery from the 2008 debacle, or that
ery from the 2008 debacle, or that
Hidden Rays of Hope.
Hidden Rays of Hope. before this quarter started the markets
before this quarter started the markets U.S. Fixed Income
U.S. Fixed Income 3.82%
3.82%
were in positive territory overall for
were in positive territory overall for (Barclay Capital Aggregate Bond Index)
(Barclay Capital Aggregate Bond Index)
(Barclay Capital Aggregate Bond Index)
By any reasonable measure, the past
By any reasonable measure, the past 2011.
2011. International Fixed Income 2.95%
three months have been among the
three months have been among the International Fixed Income 2.95%
gloomiest fiscal quarters on record (JP Morgan GBI ex-US (Hedged) Index)
(JP Morgan GBI ex-US (Hedged) Index)
(JP Morgan GBI ex-US (Hedged) Index)
gloomiest fiscal quarters on record
for the investment markets. The debt The widely-followed S&P 500 index ,,
The widely-followed S&P 500 index ,
for the investment markets. The debt comprised of the largest compa-
comprised of the largest compa-
U.S. Equities, Large
U.S. Equities, Large -13.87%
-13.87%
ceiling debate, constant dithering
ceiling debate, constant dithering (S&P 500 Index)
in Europe over whether or not Euro- nies domiciled in the U.S.,,was down
nies domiciled in the U.S.,was down
in the U.S. was down (S&P 500 Index)
(S&P 500 Index)
in Europe over whether or not Euro- 13.87% for the quarter, giving it a loss
zone members should be allowed 13.87% for the quarter, giving it a loss U.S. Equities, Small
U.S. Equities, Small -21.87%
-21.87%
zone members should be allowed of 8.68% so far this year. The Russell (Russell 2000 Index)
to default on their sovereign debt, of 8.68% so far this year. The Russell (Russell 2000 Index)
(Russell 2000 Index)
to default on their sovereign debt, 2000 small cap index fell a remarkable
partisan bickering, the downgrade of 2000 small cap index fell a remarkable
index fell a remarkable International Equities, Large -19.60%
partisan bickering, the downgrade of 21.87% in the third quarter, placing it International Equities, Large -19.60%
U.S. government debt, continued un- 21.87% in the third quarter, placing it (MSCI EAFE Index)
U.S. government debt, continued un- down 17.02% for the year. Internation- (MSCI EAFE Index)
(MSCI EAFE Index)
employment, and a general unsettled down 17.02% for the year. Internation-
employment, and a general unsettled ally, the results were much the same. International Equities, Small -19.77%
feeling about the economic recovery
feeling about the economic recovery
ally, the results were much the same. International Equities, Small -19.77%
The EAFE index, which represents
The EAFE index, which represents (S&P/Citigroup EPAC Ext. Mkt. Index)
(S&P/Citigroup EPAC Ext. Mkt. Index)
(S&P/Citigroup EPAC Ext. Mkt. Index)
have all combined to put investors in a
have all combined to put investors in a large cap stocks across the developed
large cap stocks across the developed
pessimistic mood. When people are
pessimistic mood. When people are Real Estate Investment Trusts (REITs) -15.07%
Real Estate Investment Trusts (REITs) -15.07%
world, plunged 19.60% for the quarter,
world, plunged 19.60% for the quarter, (NAREIT Equity Index)
pessimistic about the future, they sell
pessimistic about the future, they sell (NAREIT Equity Index)
(NAREIT Equity Index)
and is down 17.18% for the year.
and is down 17.18% for the year.
-- as they did, steadily and persistently,
-- as they did, steadily and persistently, Commodities/Natural Resources -11.33%
through what will be remembered as Commodities/Natural Resources -11.33%
through what will be remembered as (DJ UBS Commodities Index)
(DJ UBS Commodities Index)
(DJ UBS Commodities Index)
the gloomy summer of 2011.
the gloomy summer of 2011. Continued Pg. 4
Continued Pg. 4
Continued Pg. 4
angela at a glance
ngela at a lance
By: Angela C. Collins
By: Angela C. Collins
II am excited to have the opportunity to be the first Fall Associate at Fox, Joss & Yankee. II was
am excited to have the opportunity to be the first Fall Associate at Fox, Joss & Yankee. was
born and raised in Amarillo, Texas. attended West Texas A & M University where completed my
born and raised in Amarillo, Texas. II attended West Texas A & M University where II completed my
Bachelor of Accounting as well as a Master of Business Administration. II am currently attending Texas
Bachelor of Accounting as well as a Master of Business Administration. am currently attending Texas
Tech University for a Ph.D. of Personal Financial Planning with an emphasis in Marriage and Family
Tech University for a Ph.D. of Personal Financial Planning with an emphasis in Marriage and Family
Therapy/Addiction Studies. My responsibilities also included helping organize Opportunity Days,
Therapy/Addiction Studies. My responsibilities also included helping organize Opportunity Days,
which is the largest financial planning event at Texas Tech, as well as the Professional Experience
which is the largest financial planning event at Texas Tech, as well as the Professional Experience
courses which take students to professional conferences each year.
courses which take students to professional conferences each year.
As a Ph.D. student of Personal Financial Planning at Texas Tech University, II teach the Introduction to
As a Ph.D. student of Personal Financial Planning at Texas Tech University, teach the Introduction to
Financial Planning course for Undergraduates. II realized that II had limited knowledge of how a finan-
Financial Planning course for Undergraduates. realized that had limited knowledge of how a finan-
cial planning practice really operates since II have never been a practitioner. II decided that in order
cial planning practice really operates since I have never been a practitioner. I decided that in order
cial planning practice really operates since have never been a practitioner. decided that in order
for me to better educate my students and eventually run a financial planning program in a university
for me to better educate my students and eventually run a financial planning program in a university
Continued Pg. 4
Continued Pg. 4
Continued Pg. 4
QuiCk PLANNiNg QuESTiON:
QuiCk PLANNiNg QuESTiON:
uiCk LANNiNg uESTiON
HAvE yOu SEEN OuR NEw ANd iMPROvEd wEbSiTE?
HAvE yOu SEEN OuR NEw ANd iMPROvEd wEbSiTE?
AvE yOu SEEN OuR NEw ANd iMPROvEd wEbSiTE
www.FjyFiNANCiAL.COM
www.FjyFiNANCiAL.COM
www FjyFiNANCiAL COM

2. Do Business owners neeD
cyBer liaBility insurance? Why do I need Cyber Liability Insurance? per. An employee was supposed to separate
the forms and send each to its rightful owner.
By: Paul Chadowski
Traditional liability products do not address Instead, one person received both copies.
As a business owner, can you afford to pay Internet exposures. The risks involved in The mistake sent tax forms and social security
thousands of dollars to notify your clients that Internet business have blossomed with the numbers to strangers. Half of the intended
their private information has been breached Internet itself. That’s why you need to protect recipients received their forms-- in addition
by an unknown third party? What about the yourself. The universe of potential plaintiffs to the private information of the others.
costs to restore the faith your customers have is staggering, given the number of people
with you handling their private information and organizations that are currently surfing Malicious Code:
after it was breached? Can you afford the the Internet. A potential legal action from just A juvenile released a computer worm direct-
cost of time and money to investigate where one of them could be costly. The potential ing infected computers to launch a denial
the breach originated from and how to avoid liability associated with website content is of service attack against a regional computer
it in the future? already great, and continues to grow rapidly. consulting and application outsourcing firm.
For a company operating in today’s high The infection caused an 18-hour shutdown
If you are answering NO or are unsure, then tech world, your computer network will of the company’s computer systems. The
you should consider Cyber Liability Insur- more than likely provide internal and external computer consulting and application out-
ance. This addresses the first- and third-party email, and you will probably have your own sourcing firm incurred extensive costs and
risks associated with e-business, the Internet, website providing information about your expenses to repair and restore their system,
networks and informational assets. Cyber company, its products and services with as well as business interruption expenses
Liability Insurance coverage offers cutting- even the possibility of e-commerce. which totaled approximately $875,000.
edge protection for exposures arising out of
Internet communications. The concept of What companies offer Cyber Liability How much do these claims cost?
Cyber Liability takes into account first (you) Insurance?
and third-party (your customer’s) risks. On average, $204 per compromised record.
The risk category includes privacy There are many options available for Cyber For example, if you have 1,000 records, the
issues, infringement of intellectual property, Liability Insurance. Some of the most active total cost would be $204,000.
virus transmission, or any other serious providers include: Ace, Arch, AxisPro, Bea-
trouble that may be passed from first to zley, Chartis, CAN, Chubb, Hartford, Hiscox Some questions asked to get an indica-
third parties via the Internet. (Lloyds), USLI, Philadelphia, Travelers, XL, and tion for a quote are:
Zurich.
Who needs Cyber Liability Insurance? • Do you have a firewall?
Some common claim examples include: • Do you have a virus protection program in
Anyone with a website now has the legal place?
liabilities of a publisher. The Internet - that Theft of Digital Assets: • Do you outsource a critical part of your
technological wonder of worldwide com- A regional retailer contracted with a third- internal network/computer system?
munication - has spun a whole new “web” party service provider. A burglar stole two • Have you ever experienced a privacy
of liability exposures. Creating a website is laptops of the service provider containing breach or security breach?
simple. The liability exposures that come the data of over 800,000 customers of the • What types of personal Identifiable Infor-
with it are not. Privately-owned companies retailer. Under applicable notification laws, mation do you hold: (e.g. Social Security
that venture onto the web face liability ex- the retailer – not the service provider – was numbers, Drivers Licenses, Personal Health
posures that are emerging, evolving, and can required to notify affected individuals. Total information)?
be very complex. Commercial companies expenses incurred for notification and crisis
that disseminate information to the public via management to customers was nearly $5
websites face the same legal exposures as million. For more information, contact Paul Chadowski
publishers, yet most have little or no con- at paul@chadowskiinsurance.com or by
cept of their resulting legal responsibilities. Human Error: calling 7083-385-2066. His website is:
Legislation continues to create potential A nonprofit community action corporation www.chadowskiinsuranceagency.com.
www.chadowskiinsuranceagency.com.
liabilities, in user privacy and domain name printed two 1099 forms on one piece of pa-
infringement.

3. thinking in real terMs Figure 1: One-Month Treasury Bills
Nominal vs. Real Yield
By: Tess Downing, MBA, CFP®
Since the onset of the financial crisis in late
2007, the Federal Reserve has used interest-
rate cuts and other policy tools in an effort
to fuel economic growth. Economists can
debate the effectiveness of these policies,
but everyone can agree that today’s low
interest rates are a two-sided coin.
Consumers, businesses, and government
all benefit from low borrowing costs. But
on the other side, savers and investors earn
almost nothing on their cash balances. This
has been the case in most months since
spur a recovery. At these times investors
2008, when the Fed cut short-term interest
may be tempted to flee the capital markets
rates to near zero. Worse yet, investors are
You may note that some negative real yields
may real yields
actually losing wealth in real terms. The in-
have occurred during recessionary periods,
flation-adjusted yields on short-term Treasury
when the Fed was cutting interest rates to
interest
securities have been negative in most months
for the recovery. Investors may have a host of
spur a perceived safety of cash. Investors
since October 2010. (Nominal yields reflect
FJY Advisors
may have a their flight–– some mightflight—
reasons for host of reasons for their want to
the stated interest rate, while real yields are
some might wantuncertainty or stock market
avoid economic to avoid economic uncer-
adjusted for inflation.)
& stAFF
tainty orwhile others might fear while others
volatity, stock market volatility, that impending
might fear that rates will cause bonds to lose
higher interest impending higher interest
Earning negative real yields on short-term value.
rates will cause bonds to lose value.
fixed income is not unprecedented, as
MARjORiE L. FOx
shown in Figure 1. In fact, inflation has sr. Financial aDvisor
This is the case for many individual investors
exceeded nominal interest rates in several
and professional money managers today.
post-war periods. This graph plots nominal dANiEL d. jOSS
They are reportedly shifting their portfolios to sr. Financial aDvisor
and real yields of one-month Treasury bills,
money market funds and other cash instru-
which are considered the equivalent of cash.
ments with the intent to return to stocks jON P yANkEE
.
The gap between the two lines is the infla- sr. Financial aDvisor
and bonds when the economy shows signs
tion rate.
of improvement.1 The problem with this LAuRiE A. bELEw
strategy is that no one can consistently time Financial aDvisor
The real (inflation-adjusted) yield is com-
markets, and the signs are never clear. So
puted using trailing 12-month changes in
while investors sit in cash, their purchasing TESS L. dOwNiNg
the Consumer Price Index. (Source: Federal
power quietly erodes. associate Financial aDvisor
Reserve Economic Data). Negative real yields
have occurred during periods of high interest
THOMAS N. SAuNdERS, jR.
Investors may have good reasons to hold client relationship associate
rates (early 1980s) and during periods of low
cash. But they should understand that hold-
interest rates (2010–11). Regardless of the
ing cash has a price in real terms. Investors
LiSA j. CRAFFORd
scenario, negative real yields cause investors oFFice Manager
ultimately may lose wealth even as they try
to lose purchasing power. Keep in mind that SALLy M. yANkEE
to protect it.
the graph shows yields only and not total re- aDMinistrative assistant
turn, which also would reflect price changes Endnote:
resulting from interest rate movements. 1. Jonnelle Marte, “The New Cash Hoarders: Smart or Not-So-
Smart?” SmartMoney, June 29, 2011.
Past performance is no guarantee of future results.

4. applications when I return to Texas Tech in economy, or is it just part of the story? We
December. should note that the U.S. GDP actually grew
2.3% for the past three months, a much
I will return to my coursework in January 2012 faster growth rate than the anemic
1925 Isaac Newton Square, E with anticipated graduation in 2013. I am work- first quarter (0.4%) and only slightly-more-
Suite 400 ing on several papers for publications as well promising second quarter (1.3%). Do
Reston, Virginia 20190 as a grant to help design pro bono programs those numbers look like they are moving the
for financial planning programs. My research economy toward a double-dip recession, as
1.703.889.1111 phone
many investors seem to fear?
interests are pro bono work, aging populations
1.866.366.9233 fax
and financial decision making, and compliance
info@fjyfinancial.com email
Another fear is that the Euro zone will col-
related issues in financial planning. I am cur-
rently enrolled online full time at Texas Tech lapse under the weight of Greek debt. But
there is good news on that front as well; the
www.fjyfinancial.com working on a Master in Education Research and
Measurement. After the schoolwork and papers, German parliament voted to support the
I like to spend my free time exploring the metro expansion of the European Financial Stabil-
area and reading any type of fiction. ity Facility, the 10th and most important of
the Euro zone members to ratify the bailout
agreement.
Quarter in review cont Meanwhile, supply shortages of oil have
angela at a glance cont eased from the start of the year, causing
Even the assets that often zig when the stock oil prices to drop. Consumers have paid
market zags were down comparably for the down enormous amounts of debt over the
setting I needed to understand how quarter. The NAREIT index of real estate invest-
practices really operate. I decided that if past three years, bringing them in line with
ment trusts was down 15.07% for the third where the consumer debt burden has been
I tell my students to “walk the walk” that I quarter moving it down 6.05% for the year.
better be able to do it as well. for the past 30 years. Corporate profits and
Commodities told the same story: The Dow cash balances remain at record high levels,
Jones/UBS Commodities index fell 11.33% in and there are signs that the unemployment
The beginning of my real world education the quarter bringing it down 13.62% for the
started in December 2010 when I became problem is starting to ease--although it will
year. be years before we see unemployment fall
the first Scholar in Residence at the Certi-
fied Financial Planning Board of Standards to levels seen in the early part of this century.
Just when you thought that yields on govern-
in Washington, D.C. During my tenure ment bonds couldn’t go any lower, they did:
at the CFP Board, I received numerous Despite what you hear on the cable financial
bonds of up to one year maturity are essentially news channels, nobody really knows how
opportunities to see the importance of paying zero interest, while five-year Treasuries
financial planning as a profession from the long stocks will remain on sale or how long
are paying 1% a year, and 10-year Treasury is- it will take for the global economy to finally
education, research, and practice point sues lock you in at 2.125% a year.
of view. I participated in current initiatives sort itself out. We DO know, from past
such as the Public Awareness campaign, experience, that eventually the economy
It is usually more difficult to read the minds of recovers from even the most severe shocks,
exam research and compliance issues in the investing public than the cable financial
Professional Standards. and (again, eventually) the markets return to
programs and financial press makes it appear; health. History tells us that a recovery is in-
however, this summer there was clarity about evitable, and it seems to be visibly underway
In September, I came to Fox, Joss & Yan- the cause of the malaise – Congress finally
kee to understand the practitioner piece somewhere behind the hubbub of the nega-
agreed to a messy compromise on the debt tive press, partisan bickering, and occasional
of financial planning. Many of my students ceiling. It was evident that many people were
take internships with firms and come back market panics.
questioning whether our lawmakers have a firm
with a greater understanding and breadth grasp of the financial and economic challenges
of knowledge. I am greatly anticipating When investors figure that out, there will be
facing our nation. When investors look over- another bull run and (this we can predict
being able to see how all the pieces will seas, they see that European governments are, if
fit together after being at the University with confidence), people in that happy time
possible, even less functional in their approach will forget all over again that stocks can go
setting (Texas Tech), the standards setting to repairing the global economy.
body (CFP Board) and in practice (FJY). down as well as up. That’s when you’ll hear
This opportunity will give me the ability your advisors at FJY talking about the
Is gloom and doom the real story about the downside risks.
to better educate students in real world
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future
performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter, will be profitable, equal any corresponding indicated
historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions
or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment
advice from Fox, Joss & Yankee, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/
she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for
review upon request.
Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction
and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance
results. It should not be assumed that your account holdings correspond directly to any comparative indices.